Fairfax slashes value of NZ business as Nine merger looms

Aug. 15 (BusinessDesk) - Fairfax Media
Group more than halved the value of its Kiwi assets,
attaching just A$40 million to mastheads that were once the
core of a billion dollar investment.

Sydney-based Fairfax
is pursuing a A$2.2 billion deal with Nine Entertainment Co
where the television company will effectively take over the
publisher in Australia's biggest media consolidation since
rules were changed allowing the ownership of print,
television and radio assets. That deal didn't place much
emphasis on the opportunities provided by the New Zealand
division, Stuff, which again had the value of its intangible
assets slashed.

Fairfax cut A$60.5 million from the value
of Stuff's licences, mastheads and trade names - including
the Sunday Star-Times, Dominion Post and Press newspapers -
to A$39.8 million. Those assets were valued at NZ$1.12
billion in 2003 when the formerly Australian family-owned
media group bought the Kiwi business from Rupert Murdoch's
Independent Newspapers Ltd.

"The New Zealand media
business is facing similar structural print revenue declines
as Australia," Fairfax said in its annual report. "Digital
revenue is expected to grow, albeit from a smaller base,
which doesn't mitigate or offset print revenue declines."

Stuff's earnings before interest, tax, depreciation and
amortisation shrank 27 percent to NZ$40.5 million in the
year ended June. Revenue fell 7.5 percent to NZ$301.4
million. Earnings were squeezed by a NZ$3.4 million
provision as the media group reassessed its Holidays Act
liabilities and invested NZ$2.6 million in the Stuff Fibre
telecommunications retail service provider.

The New
Zealand unit also bore the brunt of restructuring costs in a
year when it sold or closed a third of its unprofitable
community and regional publications. It accounted for A$16.2
million of the group's A$36 million of annual restructuring
and redundancy charges.

Stuff's digital revenue climbed
21 percent to NZ$47.8 million, driven largely by Stuff Fibre
and Neighbourly. Fairfax attributed the growth to greater
use of those services by its existing 2.1 million online
audience. Other revenue gained 14 percent to NZ$17.6
million.

"The pain of restructuring efforts will prove to
be worth it as the benefits start to flow in future years
and bring forward the time when increases in digital revenue
will outweigh declines in print," chief executive Greg
Hywood said in the annual report.

That will take some
time, with Stuff's print advertising revenue sliding 17
percent to NZ$140.8 million. Print subscriptions were also
down 5.9 percent to NZ$95.2 million. At the current rate of
decline in print advertising and subscriptions - about 13
percent - it will be five more years before digital and
other revenue surpasses that income provided the new income
streams can maintain a 19 percent growth rate.

Other
experiments include the 49 percent stake Stuff has taken in
start-up power retailer energyclubnz - which takes long-term
contracts with Vector and delivers electricity to its
members 'at cost'.

Fairfax hasn't given up hope the New
Zealand Court of Appeal will overturn decisions blocking a
planned merger of Stuff with Kiwi rival, NZME.

Hywood
noted the NZ division's strong digital assets put it in the
box seat to participate in any domestic media consolidation.
A tie-up with free-to-air TV and radio operator MediaWorks
has been mooted as an option if Stuff is carved out in the
Nine deal.

The New Zealand division's performance lagged
behind a 1.2 percent increase in group ebitda to A$274.2
million, despite a 3.1 percent revenue decline to A$1.69
billion. The company reported a net loss of A$53.6 million,
due to A$175.9 million of impairments on the Stuff and
Australian community divisions. The board declared a final
dividend of 1.8 Australian cents per share, payable on Sept.
6.

The ASX-listed shares fell 3.1 percent to 86.25
Australian cents, having gained 14 percent so far this year.

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